After almost 10 years, it is known by many that the Indonesian export service does not encourage competition due to the fact that zero value-added tax rate (0% VAT) is only applicable to a limited type of exported service, i.e. toll manufacturing service, repair and maintenance service connected to or engaged for movable goods utilised outside of the Indonesian Customs Area, and construction service connected to or for immovable goods located outside of the Indonesian Customs Area. As a result, an export of service outside of Indonesia may be subject to double taxation whenever the service is utilised in other jurisdictions that impose VAT or goods and services tax (GST) under their taxation laws.
With the aim of improving the Indonesian economic condition by enhancing the export of services, the Minister of Finance issued the Minister of Finance Regulation No. 32/PMK.010/2019 on Limitation of Activities and Types of VAT-able Services whose Export is Subject to Value-Added Tax. The new regulation, which entered into effect on 29 March 2019, expands the types of exported services that are subject to 0% VAT.
Under the New Regulation, “Exported Service Activities” are defined as activities in the Indonesian Customs Area that cause a certain goods, facilities, conveniences, or rights to be available for utilisation outside of the Indonesian Customs Area. The types of exported services that are subject to 0% VAT are as follows:
1. Service activities connected to moveable goods exported and to be utilised outside of the Indonesian Customs Area, which include:
a. toll manufacturing services (jasa maklon);
b. repair and maintenance services; and
c. freight forwarding services in relation to exported goods.
2. Service activities connected to immovable goods located outside of the Indonesian Customs Area, i.e. construction consultation services, which include feasibility study, planning, and design for the construction of a building, or a building masterplan located outside of the Indonesian Customs Area.
3. Any activities other than those referred to in points 1 and 2, whereby the outcomes or deliverables are
to be used outside of the Indonesian Customs Area based on the request by the recipient of the exported
a. direct or indirect delivery, among others, post service and electronic channel; or
b. the provision of a right to be used (access) outside of the Indonesian Customs Area.
Commentary from Assegaf Hamzah & Partners, a member firm of Rajah & Tann Asia: The New Regulation will enhance the competitiveness of the national services industry. With this development, it is expected that the biggest impact will be felt by the Indonesian export services providers, who would be able to compete with other services providers in other jurisdictions.